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Selling out the little guy

A fortnight ago, a French court ordered the online auction website eBay to pay €38.9m in damages to LVMH, the French luxury brands company. The complaint: that counterfeit goods are being sold through eBay and that the site allows unauthorised sales of genuine merchandise. eBay will appeal, but if the judgment holds, eBay would have to alter much of its business model radically to block such listings.

The original bedrock of the site was individuals selling the unwanted contents of their attics to buyers found through eBay's own search engine. Requiring eBay to police its listings would make it a very different marketplace.

Even before the court judgment, eBay was changing, becoming less of a community and more of a shopping mall. These days 42 per cent of the 13 million-plus items that you will find listed on the world's biggest online auction site are for "buy-it-now" sales, not auctions. This year, eBay has also made changes to its fee structure that small sellers say are hurting them badly.

More important are changes eBay made to its feedback system, which were so contentious that sellers mounted a strike against the site at the beginning of May. Feedback began as a reputation system to protect the community from fraud and bad behaviour. Over time, it has become less effective. Leaving negative feedback now means risking that the subject will retaliate. What should be minor disputes may have permanent consequences.

In an attempt to remedy that, as of May, sellers can no longer leave negative or neutral feedback about buyers. In theory, this should make the system more honest: buyers can say what they really think about sellers without fear. It is, however, a profound shift in the balance of power, underlined by ancillary changes (such as basing sellers' displayed percentage rating on only the past 12 months rather than their whole history) that tend to favour eBay's bigger "Powersellers".

When eBay was founded in 1995, the common belief was that there was going to be just one winner in the online auction space. Now, however, things look rather different. eBay faces increased competition from other auction and sales sites, including Google Shopping and Amazon, as well as smaller rivals which have the kind of community feel that made eBay addictive in the early days. Amazon Marketplace sellers now account for as much as 30 per cent of the site's sales.

More than that, it has become difficult to get a genuine bargain on eBay any more. Between the site changes and the fact that it's easy now - partly due to eBay itself - to find out what things are really worth, even many of its auctions feel more like ordering from a retail site.

And if eBay's sellers drift away, the company will discover it has a bigger problem even than keeping French luxury goods suppliers happy.